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Sweepstakes nightmare: You failed to register your sweepstakes

June 5, 2012

Baseball fans love clambering for soaring fly balls, and it’s generally a harmless endeavor. Except when the entire happiness of a Word-Series-bereft ball club depends on it. In the infamous Steve Bartman Incident, a spectator’s impulsive grab for the ball interfered with a possible out by Cubs left fielder Moisés Alou. Right idea, Steve; wrong time.

In sports, as in sweepstakes, the lesson holds true: Sometimes trying to do the right thing at the wrong time can lead to trouble.

That’s what happened recently when a client asked us to help create a relatively standard nationwide sweepstakes. The online sweepstakes offered an alternative mail-in entry method. The prize? A to-die-for winter vacation package to the Caribbean.

We told the client that awarding a travel vacation package for only one person was unusual. Typically a travel prize of this type included two people. However, the marketing budget apparently would only allow a prize for one person’s travel.

The prize, which included airfare, hotel, meals, and ground transportation, etc., was valued at $3,500. Because the prize’s Approximate Retail Value (ARV) was well below the $5,000 threshold for registration under New York and Florida’s statutes, the client didn’t need to register the sweepstakes in either of these states.

The nightmare began about three weeks into the five-week term of the sweepstakes. The client’s in-house lawyer reviewed the ads for the promotion and discovered that the prize had been increased from a trip for one to a vacation for two. And the ads listed an ARV of $5,200.

In a frantic telephone call to the marketing department, the in-house lawyer learned that, at the last minute, the company’s marketing department had decided to follow our advice, increased the prize package and revised the official rules accordingly.

But because the ARV of the prizes exceeded $5,000, they had unwittingly created a sweepstakes that should have been registered in both Florida and New York but wasn’t.

I explained to the perturbed in-house lawyer that the best way to deal with the failure to register this sweepstakes was to immediately contact the regulators in both New York and Florida and be completely upfront with them. We called both states and explained the situation. While the client did incur nominal fines, the effects of failing to register could have been much worse if the regulators had discovered this on their own.

What could have been done to prevent this nightmare from occurring?

Here are a few suggestions:

  • Make certain marketing personnel realize that no changes can be made to the official rules, abbreviated rules, ads, etc., after they are approved by the legal department, unless the same lawyers specifically approve the changes.
  • Also, make certain the marketing department understands that if the ARV of the prizes exceeds $5,000 and the sweepstakes is available in New York or Florida, it will probably need to be registered in those two states before it can be launched.
  • Be honest and up-front when dealing with enforcement personnel in New York and Florida (or any other state or federal authorities who have jurisdiction over your sweepstakes). I have found these people to be very understanding and appreciative if you are straightforward with them about your compliance with their regulations.
  • Carefully check the ads, e-mails, point-of-sale signage and other promotional materials that will be used in connection with a sweepstakes. Confirm that they do not conflict with or misrepresent the official rules, and that all disclaimers are accurate and appear in a clear and conspicuous manner.
  • Circle back with the marketing people responsible for the sweepstakes two days before the launch date to determine if there are any problems, questions or potential changes they want to make to the sweepstakes.

In most instances, changes can be made to a sweepstakes virtually up until the time it is launched. If the promotion must be registered, however, changes can only be made up until the registration is filed.

After a sponsor launches a sweepstakes, rules changes are generally not an option. If changes are absolutely necessary, consult an experienced sweepstakes lawyer.

Please note: We compiled this example from some of our actual cases. We modified the products and details to protect the parties’ privacy.

This post was written by retired Thompson Coburn partner Dale Joerling. If you have any questions about the topics discussed in this post, please contact Thompson Coburn partner Hap Burke.